Every year huge sums of money are transferred out of developing countries illegally, weakening their financial systems and economic potential. These illicit financial flows (IFFs), originating from money laundering, tax evasion and bribery, often reach OECD countries. However, they could be used by the developing countries to finance much-needed public services, from security and justice to basic social services such as health and education.
Recognizing the risks, countries are taking action on several fronts: strengthening their anti-money laundering regimes, enforcing transparency of company ownership, and supporting efforts to trace, freeze and recover stolen assets. Moreover, governments are committed to taking action on these issues by ratifying existing global standards and by being active members of relevant administrative bodies. ”Illicit Financial Flows from Developing Countries: Measuring OECD Responses” is the first report to measure how well countries are performing in their fight against IFFs. The report is a key output of the OECD Strategy on Development (launched in 2012), and provides a unique comparison of country performance of OECD members on some of these global standards.
The report focuses on five policy areas: money laundering, tax evasion, bribery, asset recovery and the role of donor agencies. These policy areas are described by using publicly available data and by using compliance reviews following international agreements. Some key findings in each area are presented below.
As regards money laundering, OECD countries’ anti-money laundering regimes have improved since the first set of Recommendations of the Financial Action Task Force (FATF) in 2003, which focuses on the areas of Anti-money laundering (AML) and counter-terrorist financing (CTF) regimes. Yet, on average, OECD countries’ compliance with central FATF Recommendations is low. The report suggests that countries strengthen their regulatory and supervision regimes and their licensing procedures and fully implement the new 2012 FATF Recommendations.
As regards tax evasion, since 2000, the number of agreements on exchange of information between OECD countries and developing countries has steadily increased. Though most of the agreements signed since 2005 comply with standards of the Global Forum on Transparency and Exchange of Information for Tax Purposes, there is still room for improvement and automatic exchange of information can be an effective tool in deterring tax evaders and increasing the amount of taxes paid voluntarily. Effective exchange of information between tax authorities is critical for combating all forms of international tax evasion and avoidance. According to the report, Greece shows a good performance by fulfilling eight out of ten essential elements of the Global Forum on Transparency and Exchange of Information for Tax Purposes. These ten essential elements of the Global Forum standard of exchange of information on request are grouped into three broad components: availability of information, access to information and exchange of information itself.
As regards international bribery, an estimated USD 1 trillion is paid each year in bribes. By reducing bribery the opportunities for illicit gains are reduced and hence illicit financial flows. In OECD countries, the sanctions for foreign bribery offenses are increasing. However, even though peer reviews confirm that OECD countries are taking a harder stance against corruption, almost half of OECD countries have yet to see a single prosecution.
Regarding stolen asset recovery, repatriation of stolen assets to their country of origin can provide developing countries with additional resources. Progress in OECD countries in repatriation has been modest, however, with only a limited number of countries having frozen or returned assets.
As regards the role of donor agencies, over the past years, donor agencies are increasingly involved in tackling IFFs. Agencies have supported countries’ efforts to build capacity in fighting tax evasion, corruption and money laundering. They can play an effective role by supporting the fight against illicit financial flows and strengthening their own preventive and investigative capacities against economic crime.
DAC donors (including Greece) support a number of transparency initiatives which advocate for greater transparency and better standards for reporting relevant financial information and can play an important part in curbing illicit finance.
The report is available at the following link: http://www.oecd.org/dac/accountable-effective-institutions/Illicit_Financial_Flows_from_Developing_Countries.pdf